Written by

JC Reindl and Robin Erb

Detroit Free Press Staff Writers

The city of Detroit would still provide some city-paid retiree medical benefits under Kevyn Orr’s proposal. • Medicare-eligible retirees could chose from a city-paid prescription drug plan or a modest medical and prescriptions plan to supplement Medicare. • This added plan could allow coverage for spouses and surviving spouses. • The city would also create a defined-contribution Retiree Health Reimbursement Account (HRA) for younger retirees not yet Medicare eligible. • HRAs would provide monthly stipends of $100-$130 to help pay for insurance on the new health care exchange.

Individuals who opt to skip health care coverage will face tax penalties under the Affordable Care Act. • Citizens and legal residents who skip coverage must eventually pay the greater of either $695 to $2,085 per year or 2.5% of their household income. • Penalties will be phased over three years, beginning with a $95 flat fee in 2014; $325 in 2015 and $695 in 2016. The household income penalty will be 1% in 2014; 2% in 2015 and 2.5% in 2016. • After 2016, penalties will increase with inflation. • There are several exceptions, including for financial hardships and those for whom the cheapest coverage plan exceeds 8% of their income.

Fast facts on the Affordable Care Act • Internet-based marketplace for buying health care is schedule to open Oct. 1. • Website is https://www.healthcare.gov/• The health care plans go live Jan. 1. • Most individuals are required to have coverage or face penalties.

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As Detroit confronts a possible municipal bankruptcy, the forthcoming rollout of President Barack Obama’s health care law could be the city’s lucky break.

Emergency manager Kevyn Orr has proposed moving younger retired city workers who do not yet qualify for Medicare out of their city-sponsored health plans and into the new federal system, which takes full effect Jan. 1.

The city’s Medicare-eligible retirees — generally those age 65 and older — also would give up their current coverage plans and switch over to Medicare.

Detroit is only the second major city, following Chicago, to propose shifting the financial burden of its retiree health care obligations to the new exchanges.

State government has refused to reveal the pricing on the plans to be offered, claiming the information is not yet public record. But Orr’s office acknowledges that retiree benefits under both the Medicare and non-Medicare scenarios will be somewhat less generous than now.

Orr’s spokesman, Bill Nowling, told the Free Press that the emergency manager’s team believes it has the legal prerogative to unilaterally enact these changes to retiree health care.

If plans proceed, Detroit could be on the leading edge of a trend for cash-strapped local governments.

“I think this is an option that many other local and state governments are going to start looking at,” said Alex Rosaen, a senior consultant at East Lansing-based Anderson Economic Group. “The main obstacle to doing this is seeing what the political and morale reaction is among the government workers.”

But if enough governments and businesses opt to place their under-65 retirees onto the new Internet-based marketplaces, called state insurance exchanges, the prices of available policies could rise with the higher age of these shoppers, said Gary Claxton, vice president of California-based Kaiser Family Foundation, which tracks changes created by health care reform.

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“Someone who is 60 is going to be more expensive than someone who is 35, even if their expenses are average for that age,” Claxton said.

Orr’s restructuring of retiree health care is projected to lower Detroit’s bill for post-employment benefits from $185 million — about 15% of total city revenues — down to between $27.5 million and $40 million. The city would still devote some money for retiree health care because it would offer various monthly subsides for supplementing the new coverage.

The pre-Medicare group of retired workers — 7,585 of the total 19,389 — would join millions of consumers across the country who, lacking employer-sponsored health coverage or Medicaid eligibility, can start shopping in October for an individual policy.

Much like travel websites that compare airline tickets and hotel room prices, the online marketplace will allow individuals, families and business owners to sort through policies. Families and individuals would answer questions about their income to determine eligibility for tax credits or publicly-funded coverage through Medicaid.

But unlike shopping on Priceline or Travelocity, consumers may have to pay fines if they do not buy something on the exchange.

With just three months until the exchanges’ launch date, the Obama administration is making a final push to get the marketplace operational and the word out to consumers.

A Government Accountability Office report warned last month that the exchanges might not be ready by October. But federal officials insist that they will make the deadline.

This week, the government relaunched www.healthcare.gov, a one-stop information center that will house Michigan’s health insurance exchange.

“That’s a really good sign. It shows that insurers are interested and are thinking that people are going to sign up,” said Phillip Bergquist, director of operations for the Michigan Primary Care Association, a collection of health centers whose uninsured and under-insured patients may be able to find affordable coverage on the exchange.

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As many as 14 policies in Michigan will offer a variety of rates and coverage levels.

There will be a sliding scale of federal subsidies for those whose annual family income falls between 100% and 400% of the federal poverty level. The poverty level is currently $11,490 for a single adult and $23,550 for a family of four.

An additional 470,000 Michiganders who are currently uninsured but too poor to buy subsidized insurance on the exchanges could still get health care coverage, but only if the Republican-controlled state Legislature approves a Medicaid expansion for individuals whose income is between 100% and 133% of the poverty level.

State officials are still reviewing the 14 coverage proposals submitted this spring. Each plan must offer “essential health benefits,” such as hospitalization, maternity and pediatric care, wellness care and prescription coverage.

So far, Orr’s plan is not sitting well with many retirees, many of whom accepted lower salaries in exchange for good retirement benefits, according to Richard Mack, a lawyer for city unions.

“They didn’t show up to work to do anything more than to earn a dollar and do the best job they could, and to deny them their compensation is deplorable,” Mack said.

Last year, the bankrupt city of Stockton, Calif., dropped health coverage for all of its retirees. The city reached a settlement last month to pay 1,100 of them a $5.1-million lump sum, representing about 2% of the value of their lost benefits, according to news reports.

Health care centers and other organizations in Michigan will soon learn whether they qualify for federal funds to hire outreach workers and federally-trained navigators to help the public understand the online exchange.

The federal government will operate Michigan’s exchange as a result of state lawmakers’ decision to not appropriate grant money for a joint state/federal partnership. Michigan consumers will be talking to a national call center, for example, if they have questions about the coverage plans.